ONGC, OIL told to go on shouldering OMCs' loss on petrol & diesel sale in current quarter

Upstream petroleum companies Oil and Natural Gas Corporation (ONGC) and Oil India Ltd (OIL) may have to continue bearing the losses of oil marketing companies (OMCs) on petrol and diesel, at least for the current quarter.

Though a formal decision on the fuel subsidy compensation mechanism for the current financial year has not been announced, the upstream (meaning, the refiners) companies have been instructed to provide a discount of $13 on every barrel of crude they sell to the three OMCs --- Indian Oil Corporation, Bharat Petroleum Corporation and Hindustan Petroleum Corporation.

“The instruction...is based on the discount we had provided during the third quarter of the previous fiscal,” said an ONGC official. The final discount will be adjusted later, he said. A HPC executive confirmed the discount and said it was based on the underrecoveries or revenue loss incurred from sale of petrol and diesel.

While the OMCs purchase crude oil at international prices, the sale price of petrol, diesel, kerosene and LPG are capped by government order. Currently, the OMCs lose Rs 2.58 on every litre of petrol they sell, while the loss on every litre of diesel is Rs 2.61 per litre.

Under the burden-sharing mechanism for 2009-10, the public sector upstream oil companies were supposed to fully compensate the loss on petrol and diesel, estimated at Rs 14,430 crore. The loss of Rs 31,620 crore on kerosene and LPG was supposed to be made good by the government. Of this, Rs 26,000 has been compensated to the OMCs in cash. This still left the OMCs with a loss of Rs 5,620 crore.

However, no mechanism has been announced for the current year. The report of the Kirit Parikh group, which had suggested market-linked prices for petrol and diesel and a partial increase in kerosene and LPG prices, has also not been decided upon.

Meanwhile, the oil companies are faced with rising crude oil prices. The Indian basket of crude oil has averaged $81.24 a barrel so far in the current year, over 16 per cent higher than the average of $69.76 for the whole of the previous year. However, the price has softened since the European crisis. The average price for May so far has been $77.38 per barrel. An empowered group of ministers on the Kirit Parikh report, headed by finance minister Pranab Mukherjee, is scheduled to meet on June 7.